The Dow Jones Industrial Average, in many respects, is a useless index.
It doesn't really represent the largest mega-cap companies. A slew of big names are excluded, including
The Dow doesn't represent any particular cross-section of the U.S. economy. Nearly one-third of Dow components are "industrial" types of companies, although such firms make up less than one-sixth of the economy. Yet it's usually the index that media pundits use to represent the entire market.
And if the Dow should hit 20,000, hats will fly in the air as if this stepchild of the major indices has now graduated into adulthood.
With all this attention, and with the index consistently hitting new all-time highs over the past year, it's worth noting that not only are 18 of the 30 Dow components not hitting all-time highs, but they are actually down thus far in the 21st century. I don't believe we'll truly hit a peak in the Dow until most of these companies get back on track and are hitting all-time highs with the rest of their industrial cohorts.
For the full list of Dow stocks that are down "century to date," check out the
list on Stockpickr.
(As an aside, to see what Jim Cramer thinks about the Dow components, go to the
portfolio for a compilation of his latest analysis on each company. The portfolio identifies what Cramer thinks are the issues and the downside for each stock.)
Now let's take a look at a trio of Dow Dogs of the 21st century.
First up is
. On the one hand,
Ratings Team rates Honeywell an A. On the other hand, the rest of the market doesn't seem to care much about the company. Honeywell is down 17% on the century, despite the market hitting all-time highs.
, a Honeywell shareholder, is a noted value investor who hates to be accused of market-timing. From a recent interview in
, De Vaulx had this to say about this practice:
We have no clue. As value investors, we have a view as to how cheap or expensive either an entire market or some subsets are. But valuation alone has very little predictive power short term as to what a market or a sector will do. Which is why when sometimes people say, 'Charles you have 35% of your U.S. Value Fund in cash. It's a form of market timing. You expect the market to go down,' I say, 'No, it's just a reflection that I find most stocks out there to be somewhat pricey.' It says nothing about what the market may or may not do in the next six months.
De Vaulx is also invested in value mega-caps such as
Johnson and Johnson
, which was a recent Warren Buffett pick, and
, a favorite of Buffett's longtime partner at Berkshire Hathaway,
Honeywell is a diversified conglomerate, sort of a mini-
. In fact, these two companies were going to merge several years ago until the European Union blocked the deal, saying it would have created a potential monopoly.
I believe that ever since then Honeywell has been trying to prove that it's better off the way it is and has consistently posted double-digit growth, with analysts expecting earnings to go from $2.94 per share this year to $3.32 a share next year.
The next Dow Dog is
, and it is also rated an A by
Ratings Team. AT&T, which was formerly SBC until it bought AT&T and subsequently took AT&T's famous one-letter symbol, is down 20% on the century. This is one of the safer Dow stocks you can buy at the moment, with a forward P/E of just 13 -- which is significantly below the market average of 17. Meanwhile, you get paid while you wait for the stock to go up, given its hefty dividend yield of 3.6%.
AT&T is also held by the Defined Strategy Fund, a closed-end fund that seeks to emulate the Dogs of the Dow strategy. For the fund's other holdings, check out the
I like it when I see that a stock is held by a "focused" mutual fund, i.e., a fund that owns only a few stocks and isn't trying to be overly diversified. AT&T is owned by the
, run by value investor Ken Heebner. CGM has a five-star rating by Morningstar and is up 17% per year over the past 10 years -- almost 10% per year more than the market.
In addition to AT&T, CGM is betting on
Advanced Micro Devices
(in light of its price war against
) and Cramer favorite
, among others.
The third Dow Dog is
. You have to give this company credit; it's been through a lot in the past few years. It survived the dot-com/tech bust. It survived a horrible integration period following its acquisition of Compaq. It survived a massive battle between management and large shareholders. And most recently, H-P survived the pretexting issue, where management was implicated in an internal spying scandal. It's no wonder the stock is down 30% since the century began.
Ratings Team thinks it's time for H-P to make a move upward, giving them an A- in their most recent ratings. In recent years, H-P has made significant strides in its market share battle with rival
Earnings growth has been significant for H-P, going from $2.22 a share in 2006 to an estimated $2.67 a share in 2007 and $2.95 a share in 2008. The company currently trades at a forward P/E of just 13, perhaps because the market still has it in the penalty box after all of the aforementioned scandals.
What's equally impressive about H-P is that
, Intel's venture investment program, is an H-P shareholder. Several value funds also hold shares of the company, including one of my favorites,
, run by Bruce Sherman. Sherman is a deep value investor who, surprisingly, has been dipping his toes more and more into the tech pool. Most recently, he has taken a new position in media tech company
To see the rest of these Dow Dogs of the 21st century, their letter grades from
Ratings and their return on the century (as well as a smorgasbord of their top investors and other portfolios that own them), check out the
Stockpickr tip of the day
: We regularly update all of the portfolios that
Ratings puts out. You can receive notification whenever they are updated by simply bookmarking each of the below portfolios. To bookmark any portfolio, just rate it with four stars. Here's a list of the
- Top 10 Fast Growth Stocks
- Top 10 Large-Cap Stocks
- Top 10 Mid-Cap Stocks
- Top 10 Small-Cap Stocks
- Top Discounted Closed-End Funds
- Top Seven Stocks for 2007
- Top 10 All-Around Stocks
At the time of publication, Altucher and/or his fund had no positions in stocks mentioned, although positions may change at any time.
James Altucher is a managing partner at Formula Capital, an alternative asset management firm that runs several quantitative-based hedge funds as well as a fund of hedge funds. He is also the author of
Trade Like a Hedge Fund
Trade Like Warren Buffett
. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Altucher appreciates your feedback;
to send him an email.
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